Revisiting Carbon Tax In Indonesia As Part Of ESG Efforts.

The commitment of Indonesia to manage the climate change crisis is reflecting in the carbon emission tax policy that was issued last year under Law No 7 of 2021 on the Tax Law Harmonization (“Law No. 7/2021”) in conjunction to Government Regulation No. 98 of 2021 on the Implementation of Economic Carbon Value to Achieve National Contribution Target and Glasshouse Gas Emission Control in the National Development (“GR No. 98/2021”).

With due regard the comprehensive implementation of the Carbon Economic Value on each unit of the glasshouse gas emission resulted from the human activities and economic activities, the carbon tax collection would be based on the carbon content and/or potential carbon emission and/or the carbon emission amount and/or the Mitigation Climate Change Action activities. Article 13 paragraph 1 of Law No. 7/2021 stipulates that the Carbon Tax is implemented to the carbon emission that gives negative impacts to the environmental. The state revenue of Indonesia under the basis of Carbon Tax can be allocated for the climate change crisis controlling. Such allocation will be further determined by the House of Representative of Republic Indonesia in the State Budget.

Carbon Tax Road Map

The road map of the Carbon Tax contains:

1. Strategy of the carbon emission reduction. The Indonesian government commits to reduce the glasshouse gas emission in 29% on its own and 41% with international support by 2030. This was also reflected under the GR No. 98/2021, in which that regulation also stating that the sustainability of climate plan on 2050. The Government also plans to achieve the target of emission reduction of Glasshouse Gas Effect (Gas Rumah Kaca or GRK) up to 1,185million ton CO₂e with the international support;
2. Priority Sector Target;
3. The focus on the renewable energy and sustainability;
4. The harmony of intersectional policy.

Who needs to pay?

The Carbon Tax subject is individual or entity that purchases carbon-containing goods and/or conducts activities that resulting carbon emission. 

What is the plan of implementation of Carbon Tax?

The Government is planning to apply and implement the carbon tax with the following timeline:

1. Year 2021: the development of carbon trade mechanisms;
2. Year 2022 – 2024: the implementation of the cap and tax on the emission limit for the coal steam power plant sector;
3. Year 2025 onwards: the implementation of the full carbon trade and the expansion of the carbon tax sector implementation based on each sector readiness pursuant to the economic, player, result, and/or scale. 

The domestic and/or international carbon trade is conducted through:

1. Mechanism of the carbon market through Carbon Exchange (Bursa Karbon). This will be conducted through:

1. The development of the Carbon Trading infrastructure;
2. The regulation on the utilization of the State earning from the Carbon Trading (this refers to the non-tax earning which collected on the sale and purchase transaction of Carbon Unit); and/or
3. Carbon transaction administration.
4. Direct trading.

When to pay?

The Carbon Tax occurs on the purchase of carbon-containing goods and/or activities that resulting the carbon emission on certain amount in certain period. 

The payable moment of carbon tax is determined by:

1. the moment of the purchase of carbon-containing goods;
2. the end of period of calendar year of the activities that resulting the carbon emission on certain amount; or
3. in other moment determined by or based on the Government Regulation.

The procedures of calculation, submission, payment, reporting and the implementation of the Carbon Tax, including the reduction of the Carbon Tax (as explained later below), will be further determined by the Ministry of Finance. 

How much is the rate?

The rate of the Carbon Tax is determined higher than or equal to the carbon price in the carbon market per CO₂e kilogram or in equivalent units. 

If the carbon price in the carbon market is lower than IDR30.00 per CO₂e kilogram or in equivalent value, the Carbon Tax tariff is determined at least IDR30.00 per CO₂e kilogram or in equivalent units.

The determination of the Carbon Tax Rate, its amendment and/or the basis of the tax, including the tax object will be further stipulated under the Ministry of Finance Regulation after being discussed with the House of Representative of the Republic of Indonesia. 

Any exemption?

The Carbon Tax payer that participating in the carbon emission trading, carbon emission offsets, and/or other mechanics as pursuant to the environmental laws can be given (i) a reduction of Carbon Tax; and/or other treatment for fulfilling the Carbon Tax obligation.  

When the Carbon Tax regulation is implemented?

The Article 13 paragraph 1 of Law No. 7/2021 is intended to be applied on 1 April 2022 toward the entities in the coal steam power plant sector by using the tariff of IDR30.000 per CO₂e kilogram or in equivalent units.

Author’s Note:

Most of parties are waiting the implementation regulation of the Carbon Tax including the method of payment, the collection and other relevant supervisory agent have not been further issued publicly. These mechanisms would be crucial as whether this will be an integral part of other efforts to reduce glasshouse gas emission. Indonesian government is also aware of the increase global trend of supporting ESG principles funds in doing investments in all over the world.  

For further information, please contact:  

MetaLAW, Legal Consultant, Jakarta, Indonesia

general@metalaw.id